As a result of an investigation of alleged violations of the Code of Professional Conduct of the AICPA, Mr. Sorblum, with the firm of David H. Sorblum, CPA, PC, entered into a settlement agreement under the Joint Ethics Enforcement Program effective July 19, 2016.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee) alleging a potential disciplinary matter with respect to Mr. Sorblum’s failure to ensure his firm obtained an appropriate peer review.
The ECA reviewed the allegations in the referral and information publicly available on the United States Department of Labor’s EFAST website relating to the financial statements of an employee benefit plan as of and for the year ended December 31, 2011 and Mr. Sorblum’s responses to such allegations. The ECA charged Mr. Sorblum with violations of the AICPA Code of Professional Conduct as follows:
Rule 201 – General Standards, B. - Due Professional Care
Note 5 in the financial statements state the plan is an ESOP.
Rule 202 – Compliance with Standards
1. The auditor’s report states that a limited scope audit was performed but fails to disclaim an opinion or explain the limitation of the scope of the audit. In addition, it expresses a qualified opinion. (SAS 58, 64, 79, 85, 93 and 98; AU §508)
2. The auditor did not obtain sufficient appropriate audit evidence to support the opinion on the financial statements in substantially all areas of the audit. (SAS 106)
Rule 203 – Accounting Principles
1. The existence of a benefit responsive contract is disclosed in the financial statements; however, the required disclosures were not made. (ASC 962-205-45-3)
2. The financial statements did not disclose the following:
a. Identification of investments that represent 5 percent or more of total net assets, as applicable for the plan (FASB 962-325-45);
b. Related party (party-in-interest) transactions (FASB ASC 850-10-50);
c. For assets and liabilities measured at fair value on a recurring basis, the disclosures required by ASC 820-1-50;
d. Subsequent events disclosures required by ASC 855-10-50.
Rule 501 – Acts Discreditable
As the partner responsible for his firm’s peer review compliance, Mr. Sorblum failed to ensure it complied with AICPA requirements to undergo a peer review.
In consideration of the ECA forgoing further investigation of Mr. Sorblum’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Sorblum agreed as follows:
a. To waive his right to a hearing under AICPA bylaws section 7.4.
b. To neither admit nor deny the above specified charges.
c. To his suspension from membership in the AICPA for a period of two years from the effective date of this agreement.
d. That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete 40.5 hours of continuing professional education (CPE) courses (Auditing Employee Benefit Plans*; Accounting and Auditing Update for Small Businesses; Upcoming Peer Review: Is Your Firm Ready?; Audit Workpapers: Documenting and Reviewing Field Work) within 12 months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
*This course is only required if Mr. Sorblum accepts an employee benefit plan audit engagement.
g. To comply with directive e. above, to hire an outside party, acceptable to the ECA to perform a pre-issuance review of the reports, financial statements, and working papers on one (1) audit and two (2) review engagements performed by him for one year from the date the reviewer has been approved by the ECA. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after the effective date of this agreement. Also, no later than 30 days after the effective date of this agreement, he must submit a list to the ECA of the highest level of engagements on which he expects to issue reports in the upcoming 12 months. The following information should be included regarding the engagements listed: anticipated number of hours to be spent on the engagement, level of professional services rendered, type of organization, his role and anticipated hours on each engagement, anticipated date the report will be released and whether it was an initial engagement. The ECA will select one (1) audit and two (2) review engagements for review.
He agrees to permit the outside party to report quarterly to the ECA on his progress in complying with this agreement as stated herein to comply with professional standards. The report should provide the reviewer’s comments in detail for each engagement and should include a description of the nature of the entity reviewed, the entity’s year end and the date of the review. The first report is due 120 days after the reviewer has been approved by the ECA with subsequent reports due every 90 days thereafter. He agrees to have this pre-issuance review performed at his expense. The ECA has the right to extend the period of time and number of engagements subject to pre-issuance review if there are deficiencies.
He agrees to inform the ECA of any changes in the composition of his practice or changes in his role as an engagement partner during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits or no longer acts in a supervisory capacity on such engagements, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period he returns to performing such engagements he must inform the ECA and undergo the pre-issuance reviews.
h. To further comply with directive e. above, submit six months after the due date for completion of the CPE courses and pre-issuance reviews above, a list of the highest level of engagements (audits and reviews) that he performed in the period between the date of completion of those CPE courses and pre-issuance reviews and the end of the six-month period following completion of the CPE courses and pre-issuance reviews. The following information should be included regarding the engagements listed: number of hours spent on the engagement, his role and total hours on each engagement, level of professional services rendered, type of report issued, type of organization, and whether it was an initial engagement. The ECA will select one of these engagements for review. He will be informed of this selection and will be asked to submit information to include a copy of his report, the financial statements, and working papers related to that engagement for review by the ECA. The ECA may extend the period to select an engagement to ensure a suitable selection is available. A peer review undergone by his firm would not exempt him from this requirement.
He agrees to inform the ECA of any changes in the composition of his practice or changes in his role until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits or reviews, or no longer acts in a supervisory capacity on such engagements, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period he returns to performing such engagements he must inform the ECA of this change and the ECA will select a suitable work product for review.
After an initial review of such report, financial statements, and working papers, the ECA may decide he has substantially complied with professional standards and close this matter. Or, the ECA may decide that an ethics investigation of the engagement he submitted is warranted. If at the conclusion of the investigation, the ECA finds that professional standards have in fact been violated, the ECA may refer the matter to the trial board for a hearing or take such other action as it deems appropriate.
i. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the state societies until he has completed all directives in this letter. This restriction will be communicated to those responsible for appointments to such committees. In addition, if he applies to join any other committee of the AICPA or the state societies he must inform those responsible for such appointments of the results of this ethics investigation. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h., above, substantially complies with professional standards.
j. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing and accounting until he has completed all of the directives included in this letter. This restriction will be communicated to those responsible for engaging CPE instructors at the AICPA and the state societies. This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h., above, substantially complies with professional standards.
k. To submit, within 30 days after he has signed this agreement, evidence that his firm has submitted an application to join the Employee Benefit Plan Audit Quality Center. Upon membership in that Center, he agrees that his firm will comply with the directives of that Center.
l. To be prohibited from performing peer reviews in any capacity until the directives in this letter have been completed. This prohibition will remain in effect until the ECA determines that the work product he submitted to comply with directive h., above, substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.
m. To schedule a peer review of his firm’s system of quality control for the year ended June 30, 2015. The review should be scheduled through his firm’s administering entity within 60 days of the effective date of this agreement. Mr. Sorblum must submit evidence of the scheduled review by submitting a copy of the review team approval letter issued by his firm’s administering entity. In addition, his firm’s peer review will be due to the ECA six months after being scheduled.
n. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, his peer review administering entities and his firm’s peer reviewer.
o. That the ECA shall monitor his compliance with the terms of this settlement agreement and initiate an investigation where the ECA finds there has been noncompliance.